REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

Third Division

TITANIUM CORPORAT ION, CTA CASE NO. 9644

Petitioner,
l\Iembers:

- versus - UY, Chairperson,

RINGPIS-LIBAN, and
MODESTO-SAN PE DRO, ff.
COMMISSIONER OF
INTERNAL REVEN UE,
Respondent.
Promulgated:

?--------
lO
;o·. ~o a._..

X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X

DECISION

RIN GPIS-LIBAN,l.:

This Petition for Review prays that after due proceedings, judgment be
rendered ordering respondent Commissioner of Internal Revenue or his duly
authorized representative to cancel and set aside the Formal Letter of Demand
(FLD) dated December 17, 2014 and the Final Decision on Disputed
Assessment (FDDA) dated June 29, 2017, for deficiency income tax, value-added
tax (VAT), and withholding tax - expanded (EWT), for taxable year ended
December 31, 2011, for lack of legal and factual bases. 1

T H E PART IES

Petitioner Titanium Corporation is a domestic corporation duly organized

under Philippine laws, with principal office address at 733 Wood Street Malibay,
Pasay City. 2 It was registered with the Bureau of Internal Revenue (BIR) since
June 8, 1996, and was issued Tax Identification No. 000-826-366-000. 3
/V

1
Summary of the Case, Pre-Trial Order dated April17, 2018, Docket- Vol. 2, p. 730.
2
Par. 1, Admitted Facts, Joint Stipulation of Facts and Issues (JSFI), Docket - Vo l. 1, p. 251.
3
Par. 2, Admitted Facts, JSFI, Docket - Vol. 1, p. 251.
DECISION
CTA CASE NO. 9644
Page 2 of 22

On the other hand, Respondent is the duly appointed Commissioner of

Internal Revenue, vested by law to implement and enforce the provisions of the
National Internal Revenue Code (NIRC) and other tax laws. He may be served
with summons and other processes of this Court at the 5th Floor, BIR National
Office, Agham Road, Diliman, Quezon City. 4

THE FACTS

The Letter of Authority (LOA) dated November 16,2012 with No. LOA-
051-2012-00000369 / SH: eLA201100013570 was issued to Petitioner by the
BIR-Revenue District No. 51 - Pasay City. Under the said LOA, Revenue
Officer (RO) Marilyn D. Guerzon and Group Supervisor (GS) Arnold Rase were
authorized to conduct a tax audit of Petitioner for possible deficiency internal
revenue tax liabilities for taxable year ended December 31, 2011. 5

On November 28,2014, Petitioner received from the BIR the Preliminary

Assessment Notice (PAN) dated November 24, 2014. Under the PAN,
Petitioner was assessed deficiency internal revenue taxes for taxable year
December 31,2011. 6

On December 12, 2014, Petitioner flied with the BIR its Reply dated
December 12, 2014. 7

Petitioner received a copy of the Formal Assessment Notice (FAN) dated

December 17, 2014 on even date, which assessed Petitioner deficiency internal
revenue taxes for taxable year ended December 31, 2011, in the total aggregate
amount of P7 ,801,03 7.24, including deficiency interest. 8

On January 7, 2015, Petitioner flied its Protest Letter dated January 9,

9
2014.

On July 6, 2017, Petitioner received from the BIR the assailed FDDA
dated June 29, 2017, signed by BIR Regional Director Glen A. Geraldina of
Revenue Region No. 8 - Makati, assessing Petitioner deficiency income tax,
VAT, and EWT, for tax year 2011, in the aggregate amount ofP9,216,244.96, 10
broken down as follows:#'

4
Par. 2, Petition for Review, vis-a-vis Par. 1, Answer, Docket- Vol. 1, pp. 11 and 214, respectively.
5
Par. 3, Admitted Facts, JSFI, Docket- Vol. 1, pp. 251 to 252; Exhibit "P-35", Docket- Vol. 2, p. 893;
Exhibit 11 R-2'', BIR Records, p. 2.
6
Par. 6, Admitted Facts, JSFI, Docket- Vol. 1, p. 252; Exhibit "P-38", Docket- Vol. 2, pp. 897 to 902.
7
Par. 7, Admitted Facts, JSFI, Docket- Vol. 1, p. 252; Exhibits "P-39" and "R-7", BIR Records, pp. 463 to
467.
8
Par. 8, Admitted Facts, JSFI, Docket- Vol. 1, p. 252; Exhibits "P-40" and "R-8", BIR Records, pp. 428 to
431.
9
Exhibits "P-41" and "R-9", BIR Records, pp. 468 to 472.
10
Par. 9, Admitted Facts, JSFI, Docket- Vol. 1, p. 252; Exhibit "P-43", Docket- Vol. 1, pp. 32 to 38; Exhibit
"R-14", BIR Records, pp. 529 to 533.
DECISION
CTA CASE NO. 9644
Page 3 of 22

Type Basic Interest Total

Income tax f'2,223,054.60 f'2,341,211.47 f'4,564,266.07
VAT 1,998,646.28 2,193,582.73 4,192,229.01
EWT 218,614.88 241,135.21 459,750.09
Total P9,216,245.17

On August 7, 2017, Petitioner flied the instant Petition for Review. 11

Respondent flied his Answer on October 13,2017. 12 As part of his special

and affirmative defenses, he alleged that:

a) the right of the BIR to issue the FAN with attached Details
of Discrepancies has not yet prescribed, citing the case of Bank of the
Philippine Islands vs. Commissioner of Internal Revenue13 where it was held that
the period between the request for investigation and the revised
assessment should be subtracted from the total prescriptive period, hence
once the assessment had been reconsidered at the taxpayer's instance, the
period for collection should begin to run from the date of the of the
reconsidered or modified assessment;

b) the grant need not be express, but may be implied from the
acts of the BIR Commissioner or authorized BIR official in response to
the request for investigation;

c) Section 3.1.5, paragraph 4 of Revenue Regulations (RR) No.

12-99 authorizes the suspension of the prescriptive period for assessment
or collections of taxes in the case of disputed assessments;

d) Petitioner's declarations in its tax returns were deficient and

did not disclose the truth regarding the correct amount of income and
sales subject to withholding and VAT, rendering it within the purview of
"false returns" and meriting a ten (1 0) year prescriptive period from
discovery of the falsity;

e) Due Process mandated under Section 228 of the NIRC, as

implemented by RR No. 12-99 was implemented in the issuance of the
PAN, FAN, and FDDA, and Petitioner was duly appraised of the factual
and legal basis thereof through the issuance of the Details of
Discrepancies attached to the PAN, FAN and FDDA which were issued
in accordance with existing law and regulations;;Y'

11
Docket- Vol. 1, pp. 10 to 31.
12
Docket- Vol. 1, pp. 214 to 225.
"/d. citing G.R. No. 139736, October 17, 2005.
DECISION
CTA CASE NO. 9644
Page 4 of 22

f) The imposition of deficiency interest on all taxes Is

authorized under the NIRC; and

g) Assessments are prima facie presumed correct and made in

good faith and the taxpayer has the duty of proving otherwise. In the
absence of proof of any irregularities in the performance of official dutes,
an assessment will not be disturbed.

Respondent transmitted the BIR Records for the instant case on

November 9, 2017 14

The pre-trial conference was scheduled and held on March 6, 2018. 15

Prior to such date, Respondent's Pre-Trial Brief and Petitioner's Pre-Trial Brief
were separately filed on March 1, 2018. 16

Thereafter, the parties submitted their Joint Stipulation of Facts and Issues
OSFI) on March 21, 2018Y In the Pre-Trial Order dated April17, 2018,18 the
said JSFI was, in effect, approved and adopted by this Court, and Pre-Trial was
deemed terminated.

During trial, Petitioner presented documentary and testimonial evidence.

As for its testimonial evidence, Petitioner offered the testimonies of the
following individuals, namely: (1) Mr. Melvin G. Ribot, 19 Petitioner's Tax
Specialist; and (2) Mr. Garry S. Pagaspas,20 the Court-commissioned
Independent Certified Public Accountant (ICPA). 21

Notably, the ICP A Report was submitted on April 11, 2018. 22

On November 28,2018, Petitioner filed its Formal Offer ofEvidence. 23

However, no comment was filed thereon by Respondent. 24 In the Resolution
~

14
Docket- Vol. 1, p. 233.
15 Notice of Pre-Trio/ Conference dated October 24, 2017, Docket- Vol. 1, pp. 227 to 228; Minutes of the
hearing held on, and Order dated, March 6, 2018, Docket- Vol. 1, pp. 294 and 249 to 250.
16
Docket- Vol. 1, pp. 246 to 248, and 266 to 275, respectively.
17
Docket- Vol. 1, pp. 251 to 25 7.
18
Docket- Vol. 2, pp. 730 to 736.
19 Exhibit "P-50", Docket- Vol. 2, pp. 753 to 767; Minutes of the hearing held on, and Order dated, June 4,

2018, Docket- Vol. 3, pp. 944 to 945; Exhibit "P-53", Docket- Vol. 3, pp. 1033 to 1038; Minutes of the
hearing held on, and Order dated, October 11, 2018, Docket- Vol. 3, pp. 1063 to 1065.
20
Exhibit "P-52", Docket- Vol. 3, pp. 953 to 967; Minutes of the hearing held on, and Order dated, July 2,
2018, Docket- Vol. 3, pp. 1017 to 1018.
21
Oath of Commission dated March 6, 2018, Docket- Vol. 1, p. 295; Minutes of the hearing held on, and
Order dated, March 6, 2018, Docket- Vol. 1, pp. 294, and 249 to 250, respectively.
22
Docket- Vol. 1, pp. 263 to 310.
23
Docket- Vol. 3, pp. 1071 to 1444; Docket- Vol. 4, pp. 1445 to 1944; Docket- Vol. 5, pp. 1945 to 2346.
"Records Verification dated January 10, 2019 issued by the Judicial Records Division of this Court, Docket
-Vol. 5, p. 2353.
DECISION
CTA CASE NO. 9644
Page 5 of 22

dated February 19,2019,25 the Court admitted Petitioner's Exhibits, except for the
following:

1) Exhibits "P-3" and "P-4-A", for failure to submit the

originals for comparison;
2) Exhibit "P-4-C", for not being found in the records of the
case and for failure to identify;
3) Exhibits "P-29", "P-41.6", "P-41.7", "P-41.8", "P-41.9", "P-
41.10", "P-41.11", and "P-41.14"; and ICPA Exhibits "P-
53.3204", "P-53.3205", "P-53.3207", "P-53.3252", "P-
53.3535", "P-53.3536", "P-53.3537", "P-53.3581", "P-
53.3582", "P-53.38.21 ", "P-53.3822", "P-53.3823", "P-
53.3824", "P-53.3827", "P-53.3830", "P53.3834", "P-
53.3835", "P-53.6116", "P-53.6117", "P-53.6118", "P-
53.7250", "P-53.8250", "P-53.8805", "P-53.9293", "P-
53.9915", "P-53.9916", "P-53.10100", "P-53.10249", "P-
53.10754", "P-54.1", "P-54.2", "P-54.3", "P-54.4", and "P-
54.5", for not being found in the records of the case."

In the same Resolution, the Court likewise directed the ICPA to submit a
soft copy of the ICPA Report and the corresponding annexes/schedules in
Microsoft Word and/or Excel format within five (5) days from receipt thereof.
In compliance therewith, Petitioner submitted, on March 7, 2019, one (1) CD
containing the following files: (1) ICPA Report in Microsoft Word; and (2) ICPA
Excel Computations (containing Tables 1 to 23 mentioned in the ICPA
Report). 26

On February 26, 2019, Petitioner ft!ed a Motion for Partial

Reconsideration, 27 praying for the following:

"(1) ALLOW Petitioner one (1) commissioner's hearing for the

comparison of the denied documentary exhibits;

(2) ALLOW Petitioner until March 8, 2019 to submit the copies

of ICPA Exhibits 'P-53.3204', 'P-53.3205', 'P-53.3207', 'P-
53.3252', 'P-53.3535', 'P-53.3536', 'P-53.3537', 'P-53.3581 ',
'P-53.3582', 'P-53.3821', 'P-53.3822', 'P-53.3823', 'P-
53.3824', 'P-53.3827', 'P-53.3830', 'P-53.3834', 'P-53.3835',
'P-53.6116', 'P-53.6117', 'P-53.6118', 'P-53.7250', 'P-
53.8250', 'P-53.8805', 'P-53.9293', 'P-53.9915', 'P-53.9916',
'P-53.10100', 'P-53.10249', 'P-53.107.54', 'P-54.1', 'P-54.2',
'P-54.3', 'P-54.4', and 'P-54.5', as certified and examined by
theiCPAy

25
Docket- Vol. 6, pp. 2409 to 2452.
26
Transmittal Letter dated March 7, 2019, Docket- Vol. 6, p. 2471.
27
Docket- Vol. 6, pp. 2457 to 2461.
DECISION
CTA CASE NO. 9644
Page 6 of 22

(iii) ALLOW the ICPA, through undersigned counsel, until

March 8, 2019 to submit a soft copy of the ICPA Report and
the corresponding annexes/schedules in Microsoft Word
and/or excel format; and thereafter,

(iv) Reconsider the denial of Exhibits 'P-3', 'P-4', Exhibits 'P-4-

c', 'P-29', 'P-41.6', 'P-41.7', 'P-41.8', 'P-41.9', 'P-41.10', 'P-
41.14', and ICPA Exhibits 'P-53.3204', 'P-53.3205', 'P-
53.3207', 'P-53.3252', 'P-53.3535', 'P-53.3536', 'P-53.3537',
'P-53.3581', 'P-53.3582', 'P-53.3821', 'P-53.3822', 'P-
53.3823', 'P-53.3824', 'P-53.3827', 'P-53.3830', 'P-53.3834',
'P-53.3835', 'P-53.6116', 'P-53.6117', 'P-53.6118', 'P-
53.7250', 'P-53.8250', 'P-53.8805', 'P-53.9293', 'P-53.9915',
'P-53.9916', 'P-53.10100', 'P-53.10249', 'P-53.10754', 'P-
54.1', 'P-54.2', 'P-54.3', 'P-54.4'."

In the Resolution dated June 13, 2019,28 the Court, among others: (1)
partially granted Petitioner's Motion for Partial Reconsideration; and (2)
admitted the Exhibits subject of the said Motion, except for the following: (a)
Exhibit "P-3", for failure to submit the originals for comparison; (b) Exhibit "P-
4-C", for not being found in the records of the case; and (c) Exhibits "P-41.6"
and "P-41.7", for not being found in the records.

On June 18,2019, Petitioner ftled a Tender of Excluded Evidence. 29 The

Court granted Petitioner's Tender, in its Resolution dated September 13, 2019. 30

Respondent likewise presented documentary and testimonial evidence.

As for his testimonial evidence, Respondent offered the testimonies of the
following individuals, namely: (1) Ms. Marilyn D. Guerzon,31 an ROof the BIR;
and (2) Ms. Milan S. Madarang, 32 also an RO of the BIR.

Meanwhile, Respondent ftled his Formal Offer of Evidence on July 15,

3
2019? Petitioner filed its Comment/Opposition (To Respondent's Formal
Offer of Evidence dated July 12, 2019) on August 1, 2019. 34 Thus, in the
Resolution dated October 24, 2019, 35 the Court admitted Respondent's exhibits;
and ordered both parties to submit their respective memorandum within thirty
(30) days from receipt of the said Resolution,iV

28
Docket- Vol. 6, pp. 2502 to 2506.
"Docket- Vol. 6, pp. 2510 to 2514.
30
Docket- Vol. 4, pp. 2537 to 2538.
31
Exhibit "R-17", Docket- Vol. S, pp. 2357 to 2365; Minutes of the hearing held on, and Order dated, June
13, 2019, Docket- Vol. 6, pp. 2507 to 2509.
32
Exhibit "R-18", Docket- Vol. S, pp. 237S to 2386; Minutes of the hearing held on, and Order dated, June
13, 2019, Docket- Vol. 6, pp. 2507 to 2509.
33
Docket- Vol. 6, pp. 2520 to 2528.
34
Docket- Vol. 6, pp. 2532 to 2S35.
35
Docket- Vol. 6, pp. 2S40 and 2S41.
DECISION
CTA CASE NO. 9644
Page 7 of 22

Petitioner ftled its Memorandum on December 6, 2019. 36 Respondent,

however, failed to file his memorandum. 37

The instant case was deemed submitted for decision on December 26,
38
2019.

THE ISSUES

The issues submitted by the parties for resolution of this Court are as
follows: 39

"I. WHETHER OR NOT THE FORMAL ASSESSMENT

NOTICE AND FINAL DECISION ON DISPUTED
ASSESSMENT ISSUED BY THE RESPONDENT
AGAINST PETITIONER FOR TAXABLE YEAR
ENDED DECEMBER 31, 2011 ARE VOID FOR
HAVING BEEN ISSUED BEYOND THE
PRESCRIPTIVE PERIOD AND/OR FOR FAILURE TO
COMPLY WITH THE RULES ON THE CONDUCT OF
TAX AUDIT INVESTIGATIONS.

II. WHETHER OR NOT PETITIONER IS LIABLE FOR

DEFICIENCY INCOME TAX, VALUE-ADDED TAX,
WITHOLDING TAX- EXPANDED AND RELATED
DEFICIENCY INTEREST FOR TAXABLE YEAR
ENDED DECEMBER 31, 2011."

THE ARGUMENTS OF THE PARTIES

Petitioner argues that the PAN, FAN and FDDA are void, for having
been issued in violation of its due process right in the conduct of tax audit
investigations, and since the LOA was not properly served on Petitioner; that
Respondent failed to conduct the required Informal Conference before issuing
the PAN; that Respondent resolved to issue the FAN /FLD without respecting
the right of Petitioner to a valid preliminary assessment proceeding; that
FAN /FLD is void for having been issued pursuant to audit examination
conducted by persons other than the revenue officers identified under the LOA;
and that the FAN and FDDA are void for having been issued beyond the
prescriptive period allowed by law~

36
Docket- Vol. 6, pp. 2542 to 2581.
37
Records Verification dated December 17, 2019 issued by the Judicial Records Division of this Court,
Docket- Vol. 6, p. 2583.
38
Resolution dated December 26, 2019, Docket- Vol. 6, p. 2585.
39
Issues to be Resolved, JSFI, Docket- Vol. 1, p. 253.
DECISION
CTA CASE NO. 9644
Page 8 of 22

Moreover, Petitioner contends that it is not liable for deficiency income

tax and deficiency VAT on undeclared income from unaccounted expenses of
P2,667 ,418.00; that it is not liable for deficiency VAT on receipts not subjected
to VAT in the amount of P2,870,297 .84; that it is not liable for deficiency VAT
on disallowed input tax allocated to exempt sales of P1,334,120.37; and that it is
not liable for deficiency income tax and EWTon the P4,742,764.00 expenses not
subjected to EWT.

On the other hand, Respondent mainly argues that his right to assess
Petitioner has not yet prescribed.

Respondent further claims that the declarations made by Petitioner in its

tax returns were deficient and did not disclose the truth regarding the correct
amount of income and sales subject to withholding and VAT, thereby rendering
the subject tax returns (i.e., EWT and VAT) as 'false' within the contemplation
of Section 222 of the 1997 NIRC. As such, it is Respondent's position that he
timely assessed Petitioner within ten (1 0) years from the discovery of falsity or
fraud.

Moreover, Respondent claims that he fully complied with the due process
requirement mandated under Section 228 of the NIRC of 1997, as implemented
by Revenue Regulations (RR) No. 12-99, as amended, when he issued the subject
PAN, FAN and FDDA to Petitioner.

THE RULING OF THE COURT

The instant Petition for Review is meritorious.

The subject PAN and FLD/ FAN

are void, as a consequence of the
violation of Petitioner's right to
administrative due process.

Petitioner contends that Respondent resolved to issue the FAN /FLD

without respecting the right of Petitioner to a valid preliminary assessment
proceeding.

There is merit in Petitioner's contention.

Section 228 of the NIRC of 1997 provides, in part, as follows:

"SEC. 228. Protesting r!f Assessment. - When the

Commissioner or his duly authorized representative finds that
/Y"
DECISION
CTA CASE NO. 9644
Page 9 of 22

proper taxes should be assessed, he shall first notify the taxpayer of

his findings: xxx

XXX XXX XXX

The taxpayers shall be informed in writing of the law

and the facts on which the assessment is made; otherwise, the
assessment shall be void.

XXX XXX x x x." (Emphasis added)

Based on the foregoing provision, it is clear that the BIR is mandated to

inform taxpayers, in writing, of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void.

In Commissioner ofInternal Revenue vs. Avon Products Manufacturing, Im:, etseq. ,40
the Supreme Court said:

"Tax assessments issued in violation of the due process

rights of a taxpayer are null and void. While the government
has an interest in the swift collection of taxes, the Bureau of
Internal Revenue and its officers and agents cannot be
overreaching in their efforts, but must perform their duties in
accordance with law, with their own rules of procedure. and
always with regard to the basic tenets of due process.

XXX XXX XXX

The Bureau oflnternal Revenue is the primary agency tasked

to assess and collect proper taxes, and to administer and enforce
the Tax Code. To perform its functions of tax assessment and
collection properly, it is given ample powers under the Tax Code,
such as the power to examine tax returns and books of accounts,
to issue a subpoena, and to assess based on the best evidence
obtainable, among others. However, these powers must 'be
exercised reasonably and [under] the prescribed procedure.' The
Commissioner and revenue officers must strictly comply with
the requirements of the law, with the Bureau of Internal
Revenue's own rules, and with due regard to taxpayer's
constitutional rights.

XXX XXX XXX

In carrying out these quasi-judicial functions, the

Commissioner is required to 'investigate facts or ascertain the
existence of facts, hold hearings, weigh evidence, and dra';-v'

40
G.R. Nos. 201398-99 and 201418-19, October 3, 2018.
DECISION
CTA CASE NO. 9644
Page 10 of 22

conclusions from them as basis for their official action and

exercise of discretion in a judicial nature.' Tax investigation and
assessment necessarily demand the observance of due
process because they affect the proprietary rights of specific
persons.

XXX XXX XXX

In Ang Tibay v. The Court of Industria/ Re/ations,41 this Court

observed that although quasi-judicial agencies 'may be said to
be free from the rigidity of certain procedural requirements[,
it] does not mean that it can, in justiciable cases coming
before it, entirely ignore or disregard the fundamental and
essential requirements of due process in trials and
investigations of an administrative character.' It then
enumerated the fundamental requirements of due process
that must be respected in administrative proceedings:

(1) The party interested or affected must be able to

present his or her own case and submit evidence in
support of it.
(2) The administrative tribunal or body must
consider the evidence presented.
(3) There must be evidence supporting the tribunal's
decision.
(4) The evidence must be substantial or 'such relevant
evidence as a reasonable mind might accept as
adequate to support a conclusion.'
(5) The administrative tribunal's decision must be
rendered on the evidence presented, or at least
contained in the record and disclosed to the parties
affected.
(6) The administrative tribunal's decision must be based
on the deciding authority's own independent
consideration of the law and facts governing the case.
(7) The administrative tribunal's decision is
rendered in a manner that the parties may know
the various issues involved and the reasons for
the decision.

XXX XXX XXX

The second to the sixth requirements refer to the party's

'inviolable rights applicable at the deliberative stage.' The
decision-maker must consider the totality of the evidence
presented as he or she decides the case#

41
62 Phil. 635 (1940) [Per J. Laurel, En Bane].
DECISION
CTA CASE NO. 9644
Page 11 of 22

The last requirement relating to the form and substance

of the decision is the decision-maker's 'dutv to give reason'to
enable the affected person to understand how the rule of
fairness has been administered in his [or her] case, to expose
the reason to public scrutiny and criticism, and to ensure that
the decision will be thought through by the decision-maker.

XXX XXX XXX

'[A] fair and reasonable opportunity to explain one's

side' is one aspect of due process. Another aspect is the due
consideration given by the decision-maker to the arguments
and evidence submitted by the affected party.

XXX XXX XXX

In Affiana for the Fami!J Foundation, Philippines, Inc. v. Garin,42

this Court held that the Food and Drug Administration failed to
observe the basic requirements of due process when it did not act
on or address the oppositions submitted by petitioner Alliance for
the Family Foundation, Philippines, Inc., but proceeded with the
registration, rectification, and distribution of the questioned
contraceptive drugs and devices. It ruled that [P]etitioner was
not afforded the genuine opportunity to be heard.

Administrative due process is anchored on fairness and

equity in procedure. It is satisfied if the party is properly
notified of the charge against it and is given a fair and
reasonable opportunity to explain or defend itself. Moreover,
it demands that the party's defenses be considered by the
administrative body in making its conclusions, and that the
parcy be sufficiently informed of the reasons for its
conclusions.

XXX XXX XXX

The facts demonstrate that Avon was deprived of due

process. It was not fully apprised of the legal and factual bases
of the assessments issued against it. The Details of
Discrepancy attached to the Prelirninaty Assessment Notice,
as well as the Formal Letter of Demand with Final
Assessment Notices, did not even comment or address the
defenses and documents submitted by Avon. Thus, Avon was
left unaware on how the Commissioner or her authorized
representatives appreciated the explanations or defenses
raised in connection with the assessments. There was clear
inaction of the Commissioner at every stage of the proceedings/

42
G.R. Nos. 217872 & 221866, August 24, 2016.
DECISION
CTA CASE NO. 9644
Page 12 of 22

XXX XXX XXX

It is true that the Commissioner is not obliged to accept the

taxpayer's explanations, as explained by the Court of Tax Appeals.
However, when he or she rejects these explanations, he or she
must give some reason for doing so. He or she must give the
particular facts upon which his or her conclusion are based.
and those facts must appear in the record." (Emphases and
underscoring added)

Based on the foregoing jurisprudential pronouncements, it is a long-

established principle that part of administrative due process are that, inter alia, the
administrative tribunal or body must consider the evidence presented, and the
decision thereof is rendered in a manner that the parties may know the various
issues involved and the reasons for the decision. Furthermore, it is clear that tax
assessments issued in violation of the due process rights of a taxpayer are null
and void.

In this case, it is clear that Respondent failed to consider Petitioner's

evidence, and arguments, and to give the particular facts upon which his
conclusions are based.

In the Memorandum dated July 28, 2014 issued by RO Marilyn D.

Guerzon,43 the latter recommended the issuance of both the PAN and FAN
relative to her investigation of Petitioner's tax liabilities, to wit:

"In view hereof, this docket is respectfully forwarded with

the recommendation for the issuance of the necessary
assessment notices (Preliminary and Formal Assessment
Notices) for us to enforce collection of the taxes due." (Emphasis
and underscoring added)

Thereafter, adopting the said recommendation, the PAN dated November

24, 2014 was issued finding deficiency internal revenue taxes due from Petitioner,
for taxable year December 31, 2011. 44 As indicated in the said PAN, the
following are the significant findings of the BIR, to wit:

1) For the deficiency income tax:

a) Undeclared income from unaccounted expenses- P2,667,418.00;
b) Disallowed expenses due to non-withholding- P5,034,931.00;
c) Salaries and wages not subjected to withholding tax -
P1 ,393,335.89;

2) For the deficiency VAT: t/

43
Exhibit "R-6", BIR Records, pp. 399 to 400.
44
Exhibit "P-38", Docket- Vol. 2, pp. 897 to 902.
DECISION
CTA CASE NO. 9644
Page 13 of 22

a) Receipts not subjected VAT - P2,870,297 .84;

b) Undeclared income from unaccounted expenses- P2,667,418.00;

3) For the deficiency EWT: Basic Tax Due- P221,536.55;

4) For the deficiency withholding tax on compensation (WTC): Basic Tax

Due- P 176,256.99; and

5) For the deficiency documentary stamp tax (PST): Basic Tax Due -
P189 ,006.00.

On December 12, 2014, Petitioner then filed with the BIR its Reply dated
December 12, 2014 to the same PAN,45 giving explanations against the above-
stated findings and offering certain documents/schedules.

However, in the FAN dated December 17, 2014, which assessed

Petitioner with deficiency internal revenue taxes for taxable year ended
December 31, 2011, in the total aggregate amount of P7,801,037.24, including
deficiency interest,46 the BIR merely reiterated the same findings as stated in the
said PAN, without giving any reason for rejecting the explanations made by
Petitioner in its Reply dated December 12, 2014. In other words, the BIR did
not give the particular facts upon which his or her conclusion in the FAN are
based. Consequently, Petitioner was left unaware on how Respondent or the
BIR appreciated the explanations or defenses raised against the subject PAN, in
clear violation of Petitioner's right to administrative due process, thereby
rendering the subject tax assessments void.

In any event, this Court likewise finds the FDDA dated June 29, 2017 a
nullity.

The RO, who conducted the

reinvestigation of Petitioner's tax
liabilities, was not duly authorized to
examine the latter's books of
accounts and other records. Thus,
the assailed FDDA is void.

As previously stated, Petitioner posits that the subject assessments are

void for having been issued pursuant to audit examination conducted by revenue
officers other than those specifically named under the LOA.

The Court agrees with Petitioner.~

45
Par. 7, Admitted Facts, JSFI, Docket- Vol. 1, p. 252; Exhibits "P-39" and "R-7", BIR Records, pp. 463 to
467.
46
Par. 8, Admitted Facts, J5FI, Docket- Vol. 1, p. 252; Exhibits "P-40" and "R-8", BIR Records, pp. 428 to
431.
DECISION
CTA CASE NO. 9644
Page 14 of 22

Section 6(A) of the NIRC of 1997 reads:

"SEC. 6. Power of the Commissioner to Make Assessments and

Prescribe Additional Requirements for Tax Administration and Enforcement.

(A) Examination of Returns and Determination ofTax Due. -After

a return has been filed as required under the provisions of this
Code, the Commissioner or his duly authorized representative
may authorize the examination of any taxpayer and the
assessment of the correct amount of tax: Provided, however,
That failure to file a return shall not prevent the Commissioner
from authorizing the examination of any taxpayer." (Emphasis and
underscoring added)

Based on the foregoing provlSlon, an authority emanating from

Respondent or his duly authorized representative is required before an
examination and an assessment may be made against a taxpayer.

Relative thereto, Sections 10 and 13 of the NIRC of 1997 provide that the
authority of an RO to examine or to recommend the assessment of any
deficiency tax due must be exercised pursuant to an LOA, to wit:

"SEC. 10. Revenue Regional Director. - Under rules and

regulations, policies and standards formulated by the
Commissioner, with the approval of the Secretary of Finance, the
Revenue Regional Director shall. within the region and
district offices under his jurisdiction. among others: xxx

XXX XXX XXX.

(c) Issue Letters of Authority for the examination of

taxpayer within the region;

XXX XXX XXX. "

(Emphases and underscoring added)

"SEC. 13. Authority of a Revenue Officer. - Subject to the rules

and regulations to be prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, a Revenue Officer
assigned to perform assessment functions in any district may,
pursuant to a Letter of Authority issued by the Revenue
Regional Director, examine taxpayers within the jurisdiction
of the district in order to collect the correct amount of tax, or
to recommend the assessment of any deficiency tax due in the
same manner that the said acts could have been performed by th~
DECISION
CTA CASE NO. 9644
Page 15 of 22

Revenue Regional Director himself." (Emphasis and underscoring

added)

Thus, a grant of authority, through an LOA issued by the Revenue

Regional Director, must be made assigning an RO, to perform tax assessment
functions, in order that such RO may examine taxpayers and collect the correct
amount of tax, or to recommend the assessment of any deficiency tax due.

In Medicard Philippines, Inc. vs. Commissioner ofInternal Revenue,47 the Supreme

Court emphasized the importance and significance of an LOA in examining the
books of accounts and other accounting records of taxpayers and in assessing
internal revenue taxes, to wit:

"An LOA is the authority given to the appropriate revenue

officer assigned to perform assessment functions. It empowers or
enables said revenue officer to examine the books of account
and other accounting records of a taxpayer for the purpose of
collecting the correct amount of tax. An LOA is premised on
the fact that the examination of a taxpayer who has already filed his
tax returns is a power that statutorily belongs only to the CIR
himself or his duly authorized representatives. Section 6 of the
NIRC clearly provides as follows:

SEC. 6. Power of the Commissioner to Make

Assessments and Prescribe Additional Requirements for Tax
Administration and Enforcement. -

(A) Examination of Return and

Determination of Tax Due.- After a return has been
filed as required under the provisions of this Code,
the Commissioner or his duly authorized
representative may authorize the examination of
any taxpayer and the assessment of the correct
amount of tax: Provided, however, That failure to file
a return shall not prevent the Commissioner from
authorizing the examination of any taxpayer.

x x x x (Emphasis and underlining Ours)

Based on the afore-quoted provision, it is clear that unless

authorized by the CIR himself or by his duly authorized
representative, through an LOA, an examination of the
taxpayer cannot ordinarily be undertaken. The circumstances
contemplated under Section 6 where the taxpayer may be assessed
through best-evidence obtainable, inventory-taking, or surveillance
among others has nothing to do with the LOA. These are simply
/¥'
47
G.R. No. 222743, AprilS, 2017.
DECISION
CT A CASE NO. 9644
Page 16 of 22

methods of examining the taxpayer in order to arrive at the correct

amount of taxes. Hence, unless undertaken by the CIR himself
or his duly authorized representatives, other tax agents may
not validly conduct any of these kinds of examinations
without prior authority.

XXX XXX XXX

In the case of Commissioner ofInternal Revenue v. Sony Philippines,

48
Inc., the Court said that:

Clearly, there must be a grant of authority

before any revenue officer can conduct an
examination or assessment. Equally important is that
the revenue officer so authorized must not go beyond
the authority given. In the absence of such an
authority. the assessment or examination is a
nullity. (Emphasis and underlining ours)

XXX XXX XXX

Contrary to the ruling of the CTA en bane, an LOA cannot

be dispensed with just because none of the financial books or
records being physically kept by MEDICARD was examined. To
begin with, Section 6 of the NIRC requires an authority from
the CIR or from his duly authorized representatives before an
examination 'of a taxpayer' may be made. The requirement
of authorization is therefore not dependent on whether the
taxpayer may be required to physically open his books and
financial records but only on whether a taxpayer is being
subject to examination.

XXX XXX XXX

That the BIR officials herein were not shown to have acted
unreasonably is beside the point because the issue of their lack of
authority was only brought up during the trial of the case. What is
crucial is whether the proceedings that led to the issuance of
VAT deficiency assessment against MEDICARD had the
prior approval and authorization from the CIR or her duly
authorized representatives. Not having authority to examine
MEDICARD in the first place. the assessment issued by the
CIR is inescapably void." (Emphases and underscoring supplied)

Based on the foregoing doctrinal pronouncements, an RO must be

authorized, through an LOA, in order that the said officer may validly examine
/Y"
48
649 Phil. 519 (2010).
DECISION
CTA CASE NO. 9644
Page 17 of 22

the books of accounts and other accounting records of a taxpayer. In the absence
of an LOA, the tax assessments issued by the BIR against such taxpayer shall be
void.

Records show that the authority to conduct an examination and

assessment of Petitioner's books of accounts emanated from LOA No. LOA-
051-2012-00000369 /eLA201100013570 dated November 16, 2012,49 issued by
Regional Director Nestor S. Valeroso of Revenue Region 8- Makati City. The
said LOA authorized RO Marilyn D. Guerzon and GS Arnalda Rase of Revenue
District No. 51- Pasay City, to examine Petitioner's books of accounts and other
accounting records for all internal revenue taxes for the period from January 1,
2011 to December 31,2011. As already observed, RO Guerzon's Memorandum
dated July 28, 2018 50 led to the issuance of the subject PAN dated November 24,
201451 and FAN dated December 17, 2014. 52 Petitioner protested the FAN and
requested for a reinvestigation in its letter dated January 9, 2015. 53 Afterwhich,
Petitioner received on July 24, 2015 an undated letter from the BIR informing it
that the tax audit investigation was re-assigned to RO Milan S. Madarang and GS
Nerissa B. Ty. 54

The transfer of Petitioner's tax audit investigation was even confirmed by

RO Milan S. Madarang herself, when she was presented to this Court to testifY
on direct examination by way of Judicial Affidavit, as to how she came to know
of Petitioner's internal revenue tax case for taxable year 2011, 55 to wit:

"7. Q: How did you come to know the internal revenue tax case
of [P]etitioner for taxable year 2011?
A.: I came to know the internal revenue tax case of
[P) etitioner for taxable year 2011, when I received a
Memorandum of Assignment No.
MOA0512012LOA3422 dated March 2, 2015,
authorizing myself to conduct a
reinvestigation/verification of certain records
relative to the Letter Protest dated 9 January 2014 of
[P] etitioner against the BIR Formal Assessment
Notice (Part I and II) dated 17 December 2014 with
attached Details of Discrepancies, involving its
deficiency income tax, value-added tax and
expanded withholding tax assessments for taxable
year2011.
('/
49
Par. 3, Admitted Facts, JSFI, Docket- Vol. 1, pp. 251 to 252; Exhibit "P-35", Docket- Vol. 2, p. 893;
Exhibit "R-2", BIR Records, p. 2.
50
Exhibit "R-6", BIR Records, pp. 399 to 400.
51 Exhibit "P-38", Docket- Vol. 2, pp. 897 to 902.
51
Par. 8, Admitted Facts, JSFI, Docket- Vol. 1, p. 252; Exhibit "P-46", Docket- Vol. 2, pp. 936 to 937;
Exhibit "R-8", BIR Records, pp. 428 to 431.
53
Q-21 to 022, Exhibit "P-50", Docket- Vol. 2, p. 759; Exhibit "P-41", Docket- Vol. 2, pp. 925 to 928;
Exhibit "R-9", BIR Records, pp. 469 to 470.
54
Q-22, Exhibit "P-50", Docket- Vol. 2, p. 759; Docket- Vol. 2, p. 929; Exhibit "R-11", BIR Records, p. 488.
55
Exhibit "R-18", Docket- Vol. 5, pp. 2376 to 2378.
DECISION
CTA CASE NO. 9644
Page 18 of 22

8 Q: You mentioned about a Memorandum of Assignment

No. MOA0512012LOA3422 dated March 2, 2015, if
shown to you a copy thereof, will you be able to identify
the same?
A: Yes, Atty.

9 Q.: I am showing to you a document captioned as

Memorandum of Assignment, what relation, if any do
this document have to your previous statement?
A: This is the same Memorandum of Assignment No.
MOA0512012LOA3422 dated March 2. 2015, which I
referred to, duly marked as Exhibit 'R-10' for the
[R]espondent and found on page 487 of the BIR Records
of this case.

10. Q: Going over this document, I noticed a signature

above the printed name, SHIRLEY 0.
CALAPATIA, Revenue District Officer, RDO 51-
Pasay City, do you know whose signature this is?
A: Yes, Atty. This is the specimen signature of ma'am
SHIRLEY 0. CALAPATIA, the then Revenue
District Officer, RDO 51-Pasay City, which was sub-
marked as Exhibit 'R-10-a' for the [R]espondent.

xxxx

12. Q: Likewise, you mentioned about a BIR Formal

Assessment Notice (Part I and II) dated 17 December
2014 with Details of Discrepancies, if shown to you
copies thereof, will you be able to identify the same?
A: Yes, Atty.

xxxx

16. Q: Further, you mentioned about a Letter Protest dated 9

January 2014 of [P]etitioner against the said BIR Formal
Assessment Notice (Part I and II) dated 17 December
2004, if shown to you a copy thereof, will you be able to
identify the same?
A: Yes, Atty.

xxxx

19. Q: Would you know what action the BIR do next, if any,
after it received the said Letter Protest dated 9 January
2014 of [P]etitioner?
A: Yes, Atty. Based on records, the BIR issued an
Undated Letter addressed to [P] etitioner, informing
/./
DECISION
CTA CASE NO. 9644
Page 19 of 22

the latter about my authority to conduct such a

reinvestigation of its disputed deficiency taxes for
taxable year 2011. Likewise, it requested
[P] etitioner to submit relevant documents in
support of its Letter Protest dated 9 January 2014
within 60 days from filing thereof, pursuant to
Revenue Regulations No. 12-99, as amended by
Revenue Regulations No. 18-2013." (Emphases and
underscoring supplied)

RO Milan S. Madarang further testified that she proceeded with the

reinvestigation of Petitioner's tax case and, thereafter, prepared a Memorandum
Report showing her factual findings on the disputed deficiency income tax, VAT
and EWT for taxable year 2011. 56 Thereafter, Revenue Regional Director Glen
A. Geraldina issued the assailed FDDA dated June 29, 2017, 57 assessing
Petitioner of deficiency income tax, VAT and EWT, and cancelling the
previously assessed deficiency WTC and DST.

Based on the foregoing testimony ofRO Milan S. Madarang, her authority

to examine or conduct a reinvestigation of Petitioner's tax liabilities for taxable
year 2011 was based on the Memorandum of Assignment No.
MOA0512012LOA3422 dated March 2, 2015, 58 issued by Revenue District
Officer Shirley 0. Calapatia, who has no power or authority to issue an LOA,
much less to effect any modification or amendment to the previously issued No.
LOA-051-2012-00000369/ eLA201100013570 dated November 16,2012, issued
by Regional Director Nestor S. Valeroso, authorizing other revenue officers.

In the case of Commissioner of Internal Revenue v. San Miguel Foods, Inc./ 9 the
Court En Bane recognized that a written document which signifies the intention
of the CIR or his duly authorized representative to reassign a taxpayer's audit and
assessment to a new revenue officer may be considered as an equivalent of an
LOA, to wit:

This power to appoint a sub-agent necessarily includes the

power to revoke the same. Thus, the authority given to ROs
Cletofel Parungao, Myrna Ramirez, Ma. Salud Maddela, Zenaida
Paz, Allan Maniego, Joel Aguila. and GS Glorializa Samoy who
were originally named in the LOA may be revoked, transferred and
reassigned to RO Maria Gracielle Cecilia F. San Pedro and GS Juvy
S. De Ia Pefia for continuance of audit.
;V'

56
Q26 to Q28, Exhibit "R-18", Docket- Vol. s, p. 2379; Exhibit "R-12", BIR Records, pp. S2S to S26.
57
Q44, Exhibit "R-18", Docket- Vol. 5, pp. 2382 to 2383; Exhibit "P-43", Docket- Vol. 1, pp. 32 to 38;
Exhibit "R-14", BIR Records, pp. 529 to 536.
58
Exhibit "R-10", BIR Records, p. 487; Exhibit "P-45", Docket- Vol. 2, p. 935.
59
CTA EB No. 1880, 6 August 2019.
DECISION
CTA CASE NO. 9644
Page 20 of 22

Said document where such authority is transferred may

be equivalent to an LOA. Several reasons support this. First, the
only directive under Section 13 of the NIRC of 1997, as amended,
which requires that assessment be done by ROs pursuant to an
LOA, is that the grant of authority be done in writing. In fact. an
"[a]gency may be oral. unless the law requires a specific form."

Second, although the document may not be entitled

"Letter of Authority" but otherwise, it can contain all the
elements necessazy to establish a contract of agency between
the CIR and the new Revenue Officer. The primary
consideration in determining the true nature of a contract is the
intention of the parries. If the words of a contract appear to
contravene the evident intention of the parries. the latter shall
prevail. Such intention is determined not only from the express
terms of their agreement. but also from the contemporaneous and
subsequent acts of the parries. The tide of the contract does not
necessarily determine its true nature. In fact, this Court has, rime
and again, declared certain documents emanating from the CIR as
his "Final Decision" on a Disputed Assessment based on the tenor
of the words therein despite the absence of the words "Final
Decision" in the tide of the document.

In interpreting what a "Letter of Authority" is, as mentioned

in Section 13 of the NIRC of 1997, as amended, the laws on
contracts and agency embodied in the Civil Code simply cannot be
ignored. Every effort must be exerted to avoid a conflict between
statutes; so that if reasonable construction is possible, the laws must
be reconciled in that manner. Similarly. every new statute should be
construed in connection with those already existing and all should
be made to harmonize and stand together, if they can be done by
any fair and reasonable interpretation. ]nterpretare et concordare leges
legibus, est optimus interpretandi modus, which means that the best
method of interpretation is that which makes laws consistent with
other laws. Tax laws do not exist in a vacuum, and must be
appreciated and applied with other laws such as the Civil Code. "60

Hence, based on the aforementioned case, a document such as a MOA

may be construed as an equivalent of a new LOA, provided that it contains all
the elements necessary to establish a Contract of Agency between the CIR or his
duly authorized representative and the new revenue officer. Included in these
elements is the authority of the person issuing the MOA.

Section JO(C) of the Tax Code grants the Revenue Regional Director,
as Petitioner's authorized representative, the authority to issue LOAs, to wit~

60
Emphasis supplied.
DECISION
CTA CASE NO. 9644
Page 21 of 22

"SEC. 10. Revenue Regional Director. - Under rules and

regulations, policies and standards formulated by tbe
Commissioner, with the approval of the Secretary of Finance, tbe
Revenue Regional director shall, within the region and district
offices under his jurisdiction, among others:

XXX XXX XXX

(c) Issue Letters of authority for tbe examination of

taxpayers within the region:'"

To reiterate, in order for the MOA to be considered as an equivalent of

an LOA, it must be signed by the CIR or his duly authorized representative.
However, in this case, it is clear from the aforementioned facts that the MOA
was only signed by Revenue District Officer Shirley 0. Calapatia who is neither
the CIR nor a Revenue Regional Director.

Therefore, on this account, both RO Milan S. Madarang and GS Nerissa

B. Ty had no authority to continue Respondent's audit which is in all fours with
the Court En Bane 's Decision in Commissioner of Intemal Revenue v. San
Miguel Foods, lnc./1 to wit:

"In the instant case, the Memorandum of Assignment

was only signed by Cesar D. Escalada, Chief, Regular LT
Audit Division 1. Therefore, RO Maria Gracielle Cecilia F.
San Pedro and GS Juvy S. De la Peiia were without authority
to continue the audit. " 62

Not having a valid authority to examine or reinvestigate the latter, the

subject deficiency tax assessments for taxable year 2011 issued by Respondent
against Petitioner via the FDDA dated June 29, 2017 is likewise inescapably
void. 63

In view of the finding that tbe subject tax assessments and the FDDA
dated June 29, 2017 are invalid, and thus, bear no valid fruit, 64 it becomes
unnecessary to address the other issues or matters raised by the parties,iv"

61
CTA EB No. 1880, 6 August 2019.
62
Emphasis supplied.
53
Commissioner of Internal Revenue vs. Liquigaz Philippines Corporation, etseq., G.R. Nos. 215534 and
215557, April 18, 2016.
64
Commissioner of Internal Revenue vs. Pilipinas Shell Petroleum Corporation, G.R. Nos. 197945 and
204119-20, July 9, 2018, G.R. No.197945 citing Commissioner of Internal Revenue vs. Reyes, G.R. Nos.
159694 and 163581, January 27, 2006.
DECISION
CTA CASE NO. 9644
Page 22 of 22

WHEREFORE, in light of the foregoing considerations, the instant

Petition for Review is GRANTED. Accordingly, the FDDA dated June 29,
2017 is WITHDRAWN and SET ASIDE. Moreover, the FLD/FAN dated
December 17,2014 is CANCELLED and SET ASIDE.

SO ORDERED.

h.~ .d<(__
MA. BELEN M. RINGPIS-LIBAN
Associate Justice

WE CONCUR:

ERL~P.UY
Associate Justice

ATTESTATION

I attest that the conclusions in the above decision were reached in

consultation before the case was assigned to the writer of the opinion of the
Court's Division.

E~P.UY
AJJodate Justice

CERTIFICATION

Pursuant to Section 13 of Article VIII of the Constitution, and the

Division's Chairperson's Attestation, it is hereby certified that the conclusions in
the above Decision were reached in consultation before the case was assigned to
the writer of the opinion of the Court's Division.
---------
Presiding Justice